In May, the State of California filed its own suit against Lyft and Uber arguing that workers for the companies were improperly classified in violation of the new law. (Credit: Daniel Dror/Shutterstock) In May, the State of California filed its own suit against Lyft and Uber arguing that workers for the companies were improperly classified in violation of the new law. (Credit: Daniel Dror/Shutterstock)

The California Public Utilities Commission (CPUC) has decided that drivers working for ride-hailing services such as Uber Technologies Inc. and Lyft Inc. will be considered employees as is depicted under California’s new gig worker law. The decision comes after a state law became effective that makes it more difficult for companies to classify workers as contractors as opposed to employees.

Having workers designated as contractors exempt an employer from paying overtime, health care, and workers’ compensation, but can also go against the essence of the “gig economy” business model of technology platforms such as Uber and Lyft that rely on more inexpensive contract workers.  The CPUC, which regulates ride-hailing companies across the state, said that it has to enforce state law, and in order to do that, drivers for transportation network companies would be considered employees, at least for now.

In the past, the ride-share companies have stated that their drivers were properly classified as independent contractors, and have indicated that the majority of drivers would not want to be considered employees, appreciating the flexibility of on-demand employment. The shift would also prevent the ride-share companies from effectively providing reliable and affordable services, and would threaten access to the essential work that Californians have begun to rely on.

In November, Lyft and Uber worked in conjunction with DoorDash on a $90 million ballot initiative that would exempt them from the law but would require the companies’ to provide mileage-based subsidies, health care stipends and occupational accident insurance to the drivers, while allowing the drivers to maintain their flexibility as contractors.

Labor unions have criticized this proposal, arguing that it creates an underclass of workers who lack fundamental protections such as sick pay and unemployment insurance.

In May, the State of California filed its own suit against Lyft and Uber, arguing that workers for the companies were improperly classified in violation of the new law.

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